ChinaFile: To Taobao or Not to Taobao, That Is the Question

Taobao is China's biggest e-commerce mall, but is it a good move for a small business to run a store on the site?

I own a Chinese design concept store in Beijing called Brand New China, or BNC. Fashion accounts for at least 70 percent of our sales. We have been open now for two years and sales have grown 32 percent. To maintain growth, we have to expand and, naturally, the Internet is our best solution.

According to a 2011 McKinsey study, fashion is the biggest-ticket item for e-commerce in China. And 36 percent of online spending is about fashion. This is a big number and it is growing fast.

Taobao is the biggest e-commerce mall in China. It has huge traffic and is the most powerful business platform for big and small businesses alike. In the same McKinsey report, it was noted that the Japanese fashion retailer Uniqlo opened its online store on Taobao in 2009. In six months, its online sales accounted for 10 percent of total sales in China. That’s how powerful Taobao is.

Most importantly, Taobao provides a comprehensive service to bridge the seller-buyer trust gap. Taobao’s financial service includes ensuring the payment is only made to the seller after goods are received.

But for us, there are several major problems:

• Taobao is very mass. Most consumers go to Taobao for bargain basement prices, not for quality or design. It’s not good for our boutique image and branding.

• Too many fake fashion items find their way onto Taobao. This is bad company.

• A lot of the local designers we carry have already opened their own stores on Taobao. It’s a bit weird to compete with our suppliers.

The other option is to set up our shop and hire a team to create a B2C site of our own.

We talked to several e-commerce advisers and they all recommended Taobao.

But we decided to do our own store mainly because we wanted to have total control over the branding, even if this means we have to spend more money and incur higher risk, not to mention higher capital commitment.

The first problem we encountered was getting a special license for e-commerce. The second problem was getting banks to work with us for online payment. It took us two months to clear these hurdles.

For a lot of non-Chinese retailers, the Internet is still the best way to get your feet wet in China. Taobao is definitely a shortcut to bypass a lot of China’s business hassles if you do not have a team on the ground. But branding is difficult or even scary.

So the biggest event for me last week was when we finally opened our online store for Brand New China. As I file this report, I am anxiously waiting for our weekend sales results.

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